Caledon deal gives CBRE infrastructure strength

Long known as a real estate investment manager, CBRE Global Investors is continuing its expansion by acquisition, buying a majority interest in infrastructure manager Caledon Capital Management.

The deal with Toronto-based Caledon not only will give CBRE Global Investors access to a Toronto-based infrastructure assets and investment team, but also to Caledon's list of high-profile Canadian institutional investors. Caledon clients include the C$175.6 billion ($130.3 billion) Ontario Teachers' Pension Plan, Toronto, and the Newfoundland and Labrador Public Service Pension Plan Corp., St. John's.

CBRE already has reaped benefits from the deal, which is expected to close in the third quarter. Its real estate business has won a mandate from a Caledon client, said T. Ritson Ferguson, CEO of CBRE Global Investors. He declined to name the new investor. CBRE invests in Canada, but has few Canadian clients.

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In expanding into infrastructure, CBRE Global Investors joins a growing group of alternative investment firms to add or relaunch infrastructure businesses that includes Hamilton Lane, The Blackstone Group LP and Carlyle Group.

A big incentive for a real estate manager to expand is that fundraising and investing in real estate is tough right now, said Jahn Brodwin, New York-based senior managing director in the real estate solutions practice at FTI Consulting Inc.

Infrastructure, like real estate, can provide durable cash flows, uncorrelated returns, diversification and a hedge against inflation, he said. Some big property owners, especially in Asia, also own ports; in the U.S., some of the biggest cell tower owners are real estate investment trusts, he explained.

But, while private infrastructure has characteristics in common with real estate, it requires a different skill set.

"To invest in (private) infrastructure you need a sizable team with a lot of experience," Mr. Ferguson said. There is a lot of money vying to invest infrastructure and it is important to have an experienced team "to understand the niches."

Sixteen infrastructure funds closed in the first quarter, raising a combined $29 billion, a record quarter in terms of capital raised for the asset class, data from London-based alternative investment research firm Preqin show.

Caledon was founded in 2006 as an infrastructure and private equity consultant. Caledon executives would like to expand globally and CBRE already has global footprint, Mr. Ferguson said.

The deal will give Caledon "the ability to plug into offices around the world," which is important as infrastructure investing becomes increasingly global, said David Rogers, founding partner of Caledon. The CBRE transaction will give Caledon access to deal flow, personnel and business development opportunities, he said.

CBRE has a global brand name. Caledon, which manages private equity as well as infrastructure, is not as well known in Europe and Asia, said Mr. Rogers, who was head of private equity at Ontario Municipal Employees' Retirement System, Toronto, before forming Caledon.

Several of Caledon's clients have said they are interested in talking to CBRE to discuss some of its other investment strategies, Mr. Rogers added.

Caledon's executives will continue as Caledon employees and own a stake in the firm, ensuring continuity, Mr. Ferguson said. Mr. Rogers said that Caledon executives will continue to own "a significant minority interest." Mr. Ferguson and Mr. Rogers declined to give the exact percentages.

The combined infrastructure business will be overseen by a six-member board, three Caledon executives and three CBRE executives, Mr. Rogers said.

The new relationship is expected to help Caledon grow. Mr. Rogers said he expects to double the size of the infrastructure team in the next three to four years. Caledon executives also are considering expanding into debt strategies. Mr. Rogers added that Caledon might also enhance its offerings of commingled funds.

"It's a real win-win. Being able to offer infrastructure, private equity and real estate together is a powerful combination," Mr. Rogers said.

This is especially true at a time when institutional investors are reducing their manager rosters.

"Investors say they have too many relationships" and they want to invest in more strategies with the managers they have, Mr. Rogers added.